New Delhi: After a lot of hue and cry over the matter of loan recovery agents, finally RBI has stepped in with draft guidelines to rein in order in the entire recovery process adopted by the banks. RBI had earlier, in its mid term review of the monetary policy at October end, decided to issue these draft guidelines by November this year. The banks and financial institutions now have full one month from 30 November 2007, to place their views and concerns with the RBI in this regard. The highlights of these draft guidelines are presented below:

Banks should pay proper attention to the screening, recruitment and background checks of the individuals appointed as the loan recovery agents.

The borrowers should be informed about the details of loan recovery agents engaged by the banks. This should also include the telephone number of the agent and the agent should call the borrower only from the telephone number conveyed to the borrower by the bank. The recovery agents cannot use abusive or threatening language while calling the borrower.

Banks should develop a mechanism for redressal of a borrower's grievances regarding the loan recovery process or agents and the borrower should be informed about it in detail.

Banks set unrealistic targets for loan recovery agents, which often lead to the agents going beyond the parameters of law. Keeping this in mind, RBI has strictly asked the banks to ensure that their contracts with the recovery agents do not cause the recovery agents to adopt unlawful, unruly and uncivilized methods of loan recovery.

RBI has asked the Indian Banks' Association (IBA) to devise a certificate course for Direct Sales Agents, Direct Marketing Agents and Recovery Agents, of at least 100 hours duration in consultation with the Indian Institute of Banking and Finance (IIBF). Banks should ensure that all their recovery agents undergo the said course and obtain the certificate within one year.

Proper legal methods should be adopted by the banks for re-possession of the property or collateral. The re-possession should be legally valid and must be done after giving required notices to the borrower. The process of re-possession like the notice period to be given to the customers before taking possession, the procedure which the bank would follow for taking possession of the property and, the procedure which the bank would follow for sale or auction of property should also be clearly communicated to the borrower.

RBI has further stated that banks will squarely be responsible for any misadventures of their loan recovery agents. Therefore, it is in their own interest to strictly follow the above guidelines and instructions regarding loan recovery.

Any complaint received by RBI, which violates any of the above guidelines or involves abusive and unlawful loan recovery practice will not be spared and strict action will be taken against it. This may include imposing a ban on the bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period. In case of persistent breach of the guidelines, Reserve Bank may consider extending the period of ban or the area of ban.

Though, these draft guidelines have many loopholes and malicious agents could use them to get things done the 'usual' way, but the intentions of RBI are very clear. Any nuisance with regard to loan recovery won't be tolerated at all. These draft guidelines will bring the much needed discipline in the loan recovery process in India.